General Comments:
It is hard to get a good handle on the cash cattle market going into Wednesday's trade with the development of wide trading ranges appearing as both sides gear up for the long holiday weekend. Northern dressed trade developed Tuesday in a much wider range than last week with prices from $148 to $155 per cwt. This is generally steady to $7 per cwt lower than last week's average, but the concern is whether further weakness in beef values and futures prices through midweek will add increased softness to cash trade during early July, which is creating some additional pressure. Moderate trade is expected to develop over the next couple of days with both sides wanting to wrap up any needed deals before Friday. Futures trade is expected mixed to mostly lower. The early support Tuesday was quickly eroded following surging grain market values following the USDA acreage report. The surprise pullback in corn acres was most obvious to not only the corn market, but also has significant impacts on overall feed and production costs through the end of the year. This will not only heavily impact overall live cattle trade, but the ability for feeder cattle to hold recent support, quickly sparked selling pressure through the entire complex. With further grain market support developing in overnight trade, the focus on adjusting overall cost of gain formulas is likely to limit any early-month support that may have otherwise moved into the cattle complex. Wednesday's slaughter is expected at 120,000 head.
Firm gains developing in lean hog futures trade is expected to carry light-to-moderate spillover buyer support as traders enter the month of July. The lean hog futures complex was able to quickly look past higher grain and feed prices during the day with traders more focused on end-of-the-month and quarter positioning. Even though August futures posted light-to-moderate support, the main support was seen in October through April contract months. Given the current structure of hog numbers and backlog of market-ready hogs through the rest of the summer, this price support correlates with a more stable supply level that could help to bring follow-through support through the upcoming days and weeks. Traders remain cautious, although at current price levels, there is a growing sentiment that prices are at or near market lows. Cash hog prices are expected $1 lower to 50 cents higher with most bids expected steady. Slaughter Wednesday is expected at 470,000 head. Friday slaughter is expected at 200,000 head. No Saturday runs are expected due to the Fourth of July holiday.
| BULL SIDE | BEAR SIDE | ||
| 1) |
The upcoming Fourth of July holiday weekend is expected to bring about increased beef demand. A strong boost in retail and food service movement over the weekend could not only help clear growing inventory levels but could become a springboard for buying through the upcoming weeks, potentially defying the traditional demand slump seen in late summer.
| 1) |
Firm pressure developing in cash cattle trade through the week is starting to erode fundamental support with the current weaker trend moving cash values to a discount to nearby futures trade for the first time since the COVID-19 pandemic has disrupted the market. This could limit short-term support in cash and futures trade.
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| 2) |
With June live cattle futures expired, the focus on August contracts and the ability to sustain the sideways market trend in live cattle futures will likely spark renewed interest from commercial and noncommercial traders during early July.
| 2) | Concerns of further food service demand pressure is starting to develop, which will continue to heavily impact the beef market. Some states have reversed reopening procedures as COVID-19 cases are spiking over the last few days. This could quickly disrupt the growth in demand that has started to build. |
| 3) |
Strong triple-digit gains in deferred lean hog futures as traders roll out of the month of June, and third quarter gives an indication that traders expect further market support to develop in the near future.
| 3) | Sharp triple-digit losses in pork cutout values Tuesday adds to the overall softness in the pork market. Concern that pork demand will continue to be more sensitive to added restrictions in several states as coronavirus cases are spiking once again. |
| 4) |
Cash hog trade started to stabilize despite the reduced processing levels this week. This could help to establish more market negotiations for market-ready hogs during the upcoming weeks.
| 4) |
Limited packer activity expected over the holiday weekend with no Saturday slaughter expected, and Friday and Monday schedules expected to be reduced. This will greatly reduce the overall number of hogs slaughtered this week.
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| #completecalfcare |
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